Birmingham Chamber of Commerce and Industry is calling for a radical overhaul of the state pensions system.

It says the challenge for the newly-elected Government should be to scrap both means testing and the State Second Pension in favour of a higher, flat-rate basic state pension.

The money generated would be invested into occupational/private pensions in the form of incentives such as additional tax breaks.

Charlotte Ritchie, policy executive at the Chamber, said: "Businesses must not be forced to cover the cost of the pensions problem through future tax increases and that means a thorough reform of the current system. With the second report of the Government's Pensions Commission due to be published in the autumn, the issue of compulsory pensions contributions by employers and/or employees could well feature heavily on the political agenda."

In a survey, 73 per cent of Chamber members revealed they had already acted to try to avoid compulsion by contributing to their employees' pensions. But 27 per cent provide no contribution because they either cannot afford the cost or because employees prefer to have non-pension benefits such as higher salaries, bonus schemes or private medical insurance.

Less than half are in favour of the introduction of compulsory employer pension contributions at three per cent of salary of all employees. Those opposed said businesses were already compelled to pay NI contributions and three per cent contributions would not provide a sufficient pension.

The clarity of a single flat rate state pension would provide a much better incentive for individuals to save.

Ms Ritchie said: "The Government's goals for a reformed, affordable and simpler pensions system spelled out in its manifesto must be achieved through creating an environment that benefits businesses, individuals and the economy as a whole."